It's War

It appears ever since the world's top money managers, crony capitalists, and
corrupt politicians were in Davos again for the annual World Economic Forum
increasing numbers are catching on to the fact the 'big risk' moving forward
is likely to be 'currency wars', which unfortunately most common people will
not understand. They don't understand the term 'currency wars' is plutocratic
double speak for 'currency debasement wars', more often referred to as money
printing. (i.e. which is price inflationary and the authorities chief mechanism
for wealth confiscation.) Such jargon is considered boorish by the 'high and
mighty' who continue to perpetuate our Ponzi
finance fraud, loosely considered an economy by those who continue to benefit
from it, the ranks of which growing more scarce by the day. (i.e. Keynesian
Economics does not
work.)

Because most also do not understand that the world's larger credit bubble must
grow or it's all over for Western fiat
currency based Globalism,
along with the jobs of many that attended in Davos in step, as the ultimate
bubble, the fraud
bubble, would be popped once living standards for the masses deteriorates
sufficiently. (i.e. think revolution.) But first we will see events accelerate
in these currency wars - this modern day version of world war. Again, the
term 'currency wars' simply means that countries are accelerating competitive
currency debasement policies designed to boost exports in what is referred
to the race
to the bottom, which is the logical progression in a mature global capitalist
cycle, with our present state being - very mature.

All this money printing will lead to accelerating inflation (some degree of hyperinflation)
eventually as well of course, however central planners have been lucky so far
because of inefficiencies associated with rising unemployment that will not
save them forever. Along this line of thinking, you should know this is coming,
and it's likely coming sooner than even the pessimists think - and it will
affect you with rapidly rising prices. Because currency debasement wars don't
work for long - they just make it look like politicians are attempting
serve your interests, when in reality they serve only their own by justifying
their jobs.

And there is no group of bureaucrats better at this kind of thing than the
Boys From Brazil of live in the Beltway, although to be sure things are heating
up all over the world in this respect, with the big story being
Japan. These guys continue to sell American's down the river no matter
what the cost, using ridiculous
forecasts, loose-headed
ideology, and feelings of euphoria to
both distract and convince a still complacent constituency they are on the
job. Of course things are steadily getting
worse, with most Americans caught in a debt
trap, and government approaching
insolvency. It's all an illusion you see, and pretty soon Americans will
be forced to recognize that the party is over, and in addition to foreigners
declaring war on you, one must also worry about Washington -
because it's war. (i.e. and now they are talking about coming for your retirement
accounts.)

States are realizing this increasingly now, which is why talk of cessation
is spreading. This will surprise many. However what would be an even
bigger surprise is if the dollar($) takes off to the upside, which would
put Americans in a losing
position in the larger currency war. Such an outcome would signal a another
round of accelerated deleveraging was taking place on a global basis, which
as you know from our cycle work, is on track to grip macro-conditions as
we head into next year. So, you've got complacency right
now while Da Boyz in New York, London, wherever, can still manage to
squeeze stocks higher, however if historical
patterns are any indication, this is set to end at some point later this
year.

How could such an outcome occur with the Fed (and friends) all printing money
like there is no tomorrow? Answer: Diminishing
returns. This is when the game of musical chairs a la rotating
currency devaluations becomes redundant. And the trigger will come out
of left field, from places you are not expecting, like Canada. Right now Canada
is in the midst of a stealth
meltdown with the popping of its real
estate bubble that should be better reflected in the financial markets
at some point. You may remember if following my work for some time the significance
of the Dow / TSE (Toronto Stock Exchange) Ratio, where a break above 2008 highs
would signal the next global credit crisis, this time with Canada unable to
escape its wrath in spite of supposedly conservative banks. (See Figure 1)

Figure 1

And of course Canada is not the only one feeling the pinch right now (other
examples are here and here),
however it's the most prominent because not only have the talking heads used
relative strength here as an indicator for the inflation trade, the implications
of an economic crash would reach around the world due to it's perceived 'safety
factor' (especially its banks), and it's role in global commodity markets.
Yes, this would be the signal the global
credit bubble is in serious trouble this time if Canada's bubbles are bursting
too. In terms of the stock market, but switching back to US measures, little
doubt we are indeed very close to top, seen here and here and here,
along with those measures familiar to us, pictured below. (See Figure 2)

Figure 2

As you can see above, it appears the mania in stocks has never left us, opening
the possibility of a double top in risk adjusted stocks before present bubble
conditions pop. Along this line of thinking, you should know that one more
day like we had last Friday will put the NASDAQ / NASDAQ Volatility Index (VXN)
Ratio at the 'best fit' Fibonacci Resonance related target discussed just last
week, which would increase the probability of a Bradley Model top at this time
considerably. The last thing the bulls want to see is the stock market continuing
higher in February and putting in an apparent top prior to the 24th. (i.e.
think Bradley
Model Top.) Such an outcome could mean all the bull market's credits might
be spent. (See Figure 3)

Figure 3

Other than that, and as can be seen in the redrawn monthly CBOE Volatility
Index (VIX), financial repression could continue on well into this year before
the triangle apex is approached. What's more, we also know money
supply measures remain constructive; given diminishing
returns could be a factor here. So in reality there is still no telling
what will happen for the balance of 2013 other than at some point a top in
stocks (equities) will occur, and it will be a biggie. This must be the chart
that Simon Potter is using - no? (See Figure 4)

Figure 4

Which brings us to precious metals, and the big question - are you willing
to run the gauntlet (take big risk) in order to invest in precious metals as
we form an important top in stocks - wondering - will it be different this
time? Because investing in precious metals the last two times we had liquidity
events (think 2000 and 2008) were bad ideas in the first year of such embroil
- to be sure. Along this line of thinking, if you are a long-term investor,
isn't it better to wait for the liquidity event to run its course and then
buy in a year or so later? History suggests the answer to this question is
an unequivocal 'yes'.

The question then arises however, are we indeed in the early stages of another
liquidity event? As you should know from reading these pages (including Dave's
Contracting Fibonacci Spiral work), the answer to this question is yet another
unequivocal 'yes', however we are not quite at the point where increasing illiquidity
should negatively impact precious metals. You would never know this with sluggish
performance in the group for some time thanks in large part to vulgarities
associated with official price management, however again, this may be set to
change, allowing for a run to new highs before deteriorating liquidity conditions
negatively affect nominal pricing.

Why would this occur now, after all this time? Answer: Because gamblers in
the aggressive paper derivatives market(s) are beginning to show capitulation
regarding their permanently bullish dispositions. This is reflected in now
rising open interest put / call ratios amongst the largest producers listed
here in the HUI
components, where as you can see here in updated
charts, 56.91% of them (most notably the top four) now show their ratios
trending higher across two-year plots. And again, if the broads remain buoyant,
which as you can see in the attached ratios of relevant US indexes above is
likely with rising values as long side players increasingly hedge positions
(they hedge instead of selling, which will eventually crash stocks), this would
allow for precious metals to run higher before liquidity conditions become
a limiting factor.

This is the theory anyway, where we will hopefully see some positive results
over the next two weeks, a shortened options cycle for the derivatives markets
of the key indexes and ETF's we follow. A fly in the ointment could be a more
buoyant broad market that sucks up available energy (liquidity) away from precious
metals, where the transports are likely to keep bulls optimistic because the
squeeze is definitely not over in this market based on the new shorts going
on the Dow Transports ETF (IYT)
(think Dow Theory followers); however, February should still be a challenging
month for the broads considering overbought conditions (not too mention the Sequester),
which in turn would allow for gold and silver to run.

What's more, and in referring to our risk (volatility) adjusted index plots
pictured above, it should be noted that although slow in transitioning, precious
metals actually thrive in periods of initial increasing volatility (because
it's perceived money supply growth rates will need to be ratcheted higher),
which are those periods directly following peaks in these measures. So, as
you can see by examining the SPX / VIX and NASDAQ / VXN plots provided above,
we are likely very close to such peaks, and in the early stages of such conditions.
So, although the risks are rising, don't give up on precious metals like just
about everybody else out there.

Growth of the Fed's Balance
Sheet alone should be enough to keep you bullish; but if that's not enough,
perhaps martial
law, which FEMA itself is predicting could be here as early as this
summer; or, war between China and Japan, will be enough to finally spark
panic buying of precious metals. Who knows - but what you should know is
you are involved in all these wars; either directly or indirectly, and that
your own increasingly facist government is the biggest threat to your financial
well-being.

So, make sure you do all you can to protect your wealth before it's too late.
Precious metals are by far the preferred method, and will not remain cheap
forever. In effect the suppression of gold and silver have made them a solvency
play, meaning they are 'must have' assets. The road to riches (in this case
- survival) can be a rocky one however. With a little luck though, precious
metals shares might be able to get rolling over the next few weeks, where one
should be watching the metrics discussed in this regard last
week for clues.

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